Tax Freedom Day underscores need for tax relief

Happy Tax Freedom Day! When Canadians return to work on Monday (June 6), they will finally be working for themselves. In other words, if we had to pay all our taxes up front, we would have to pay each and every dollar we earned from January 1 to June 5 to various levels of government.

Coincidentally, Finance Minister Jim Flaherty is also scheduled to deliver the federal budget on Tax Freedom Day. All expectations for the budget are that it will look much like the March version, dubiously entitled A Low-Tax Plan for Jobs and Growth.

While the March budget provided the Conservatives with good rhetoric heading into a federal election, the truth behind the spin is the budget was anything but a low-tax plan for jobs and growth.

In delivering the plan, Finance Minister Jim Flaherty promised that his government “will keep taxes low.”

However, taxes are hardly low. With the tax return deadline having just past, Canadians are still getting over the shock of just how much income tax they paid last year. But the reality is that income taxes account for only about one-third of the total taxes we pay. Add property taxes, sales taxes, profit taxes, health taxes, social security taxes, alcohol taxes, tobacco taxes, fuel taxes and many others to the mix and the average Canadian family will pay $39,900 in taxes (42.6 per cent of income) in 2011.

The March federal budget actually estimated an increase in total federal tax take from 12.9 per cent of GDP in 2010/11 to 13.4 per cent in 2015/16. While this may seem insignificant at first glance, it translates into an additional $67.1 billion in tax revenue. In all likelihood, this means a later Tax Freedom Day in years to come.

Canadians are also rightfully worried about the substantial $30-billion deficit the federal government expects to run this year and the fact that it has no credible plan to return to a balanced budget.

In the March budget, the Conservatives proposed balancing the budget in five years (by 2015/16). To get there, the government pinned its hopes on revenues growing at a robust average rate of 5.6 per cent over the next five years while holding program spending increases to an average rate of 1.6 per cent.

The same approach failed drastically in the 1980s and early 1990s. Successive federal governments unsuccessfully tried to balance the budget by trying to slow the growth in spending while hoping for higher revenues.

And there’s nothing in the current Conservative government’s track record suggesting they are capable of keeping a lid on spending increases. Even before the financial crisis and its massive fiscal stimulus package, the Conservative government increased spending at an average rate of 5.5 per cent.

Of course, today’s deficits must one day be paid for by taxes, which means the longer the government delays balancing its books, the more likely Tax Freedom Day will fall later in the year.

In fact, if Canadian governments covered current expenditures with current tax revenues, Tax Freedom Day would fall 16 days later on June 22.

Rather than increase the tax take, a true low-tax plan would have aggressively cut government spending to balance the budget and then implemented a multi-year plan to reduce taxes. Waiting years to eliminate the deficit will only burden Canadians with higher government debt, increased interest payments and ultimately higher taxes.

On that note, Happy Tax Freedom Day! Maybe Happy is not the right word.